Finance Case

In a socialist market economy, the separation of ownership and control is one of the premises of the establishment of modern enterprise system, the resulting conflicts of interest between managers and outside investors also become the core of the modern corporate governance research. In their seminal study, based on the dispersed ownership structure, Berle and Means (1932) analyzed the first class of agency problem according to “strong managers, weak shareholders”. Since then, a great deal of research has been carried out on this basis (Zhang Weiying, 1995; Zhang Yishan, Wang Guangliang, 2001; Xu Chuan Chen, Yan Junwu, 2011). But in recent years, La Porta et al. (1999) and a large number of other academics’ studies show that, except English and a few other countries, the ownership structure in most other countries is concentrated rather than dispersed. Therefore, the principal-agent problems in listed companies have been transformed from the conflicts between shareholders and managers to the conflict between controlling shareholders and the majority of small and medium shareholders. Especially in countries with weak investor protection mechanism, the actual controllers segregate the control right from the cash flow rights by ultimate control, making themselves can use smaller stakes to actually control the company, thus tunnel-convey companies’ resources to increase their own wealth, which result in the company performance declines significantly.

The separation between cash flow rights and control rights are also common to the domestic listed companies (Xu Xiaodong, Chen Xiaoyue, 2003; Zouping, Fu Ying, 2007; Ma Lei, Xu Xiangyi, 2010). A lot of shocking "tunneling" events in capital market (such as DeLong Group, Kelon Electric, star power etc.) also mostly have direct relationships with the separation of cash flow rights and control rights. The previous study has found that, under the influence of the unsound investor protection mechanism,